Question

Help with adjustable rate mortgage?

Answer 1

Macy has a 20 year adjustable rate mortgage with a fixed rate for the first 7 years. In the 8th year, the interest rises to 6.2%. The remaining balance at the end of the 7th year is $398,381.20. What is the monthly payment in the 8th year?
A $3,725.9
B $2,553.73
C $3,928.96
D $2,900.28

Every time I try to solve this I get $2058.3... for my answer.

Answer 2

what are you trying as a process?

Answer 3

with each adjustment, you take the remaining balance and calculate a fixed rate loan for the remaining time period at the new rate

Answer 4

so, what are the payments for a fixed rate loan of (20-7) years, at 6.2% ?

Answer 5

my own formulation is such that:\[P=-Bk^n\frac{1-k}{1-k^n}\]
B is the remaining balance
n is the remaining time period * 12 for months
and k is the compounding interest: 1 + r/12

Answer 6

im getting an option ... so it has to be an error in your process

Answer 7

I'm working it out with your formula now.

Answer 8

if we mistake 20 years we get 2900.28

Answer 9

it looks like you may have used 20 years, and did not adjust the percentage to a decimal

http://www.wolframalpha.com/input/?i=%28-398381.20%29k%5E%2820*12%29*%281-k%29%2F%281-k%5E%2820*12%29%29%2C+k%3D1%2B6.2%2F12

Answer 10

or, you used 13 correctly ... and forgot to revert 6.2 into .062